To safeguard the country’s dwindling reserves, Pakistan’s central bank recently placed restrictions on access to foreign currency. This as per recent reports has resulted in the emergence of a black market for dollars.
Pakistan’s foreign reserves have reportedly plunged to a four-year low of $6.7 billion.
As per Bloomberg, on the surface, this hasn’t impacted the exchange rates, but once you delve deeper you come face to face with the reality.
The markets still have the current exchange rates on display but the money-changing firm reports that they have no dollars. However, if you’re prepared to pay 10 per cent more than the going rate, you can get a greenback.
According to Asmat Ullah, CEO of Lahore-based money exchange company Ravi Exchange Company, “a third market has now developed”, with the interbank foreign currency market and money-changing businesses being the first two.
As the chief executive of Karachi-based financial firm Alpha Beta Core Solutions, Khurram Schehzad, puts it whenever restrictive measures are implemented, “the grey economy picks up”.
With the alleged black market, Pakistan joins other developing nations like Nigeria, Argentina, and Lebanon that have experienced parallel exchange rates.
While a 10 per cent premium may not seem like much, the black market’s formation could force the conventional authorities to relinquish control of the foreign exchange, which would hurt foreign investment and the business climate. Additionally, the dollar premium on the black market may indicate further rupee depreciation in the future.
The lack of foreign currency and the emergence of a parallel market only add to Pakistan’s lengthy list of problems. The South Asian nation has already been plagued by disastrous floods, an economic crisis, and political unrest that has even descended into violence.
(With inputs from agencies)
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